RECEIVABLES MANAGEMENT A CASE STUDY

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      RECEIVABLES MANAGEMENT: A CASE STUDY

                         Nana Amoah, Old Dominion University
                          Arundhati Rao, Towson University


                                      CASE DESCRIPTION

        The primary subject matter of this case concerns receivables management. Secondary issues
examined include the impact of a client’s financial distress on a firm’s cash flows; the use financial
accounting data to challenge a firm’s going concern principle and the formulation of new business
strategies when the unexpected happens to a firm. The case is appropriate for first year graduate
level. The case is designed to be taught in two class hours and is expected to require five hours of
outside preparation by students.

                                        CASE SYNOPSIS

        Delta Inc. was formed in 1998 by Thomas Dake and George Roberts. The firm was organized
and located in Baltimore, Maryland. It provided brokerage services for a wide range of financial
transactions for businesses in the state of Maryland. Delta’s strategy was to position itself as a
discount broker because it perceived that borrowers’ resistance to broker fees was much weaker
when the lender paid the fees. Pink Tree Finance, a public company listed on the New York Stock
Exchange, was Delta’s major business partner. About 60 percent of Delta’s receivables were due
from Pink Tree. Although Delta regarded new client and lender relationships as opportunities for
growth within the brokerage business, it also looked for opportunities in other businesses. As a
result, the firm identified the West Baltimore Senior Housing Project as a good investment
opportunity.
        Delta planned to develop a property on West Baltimore Street into a senior housing facility
and commercial spaces. The entire project was estimated to cost $10.5 million. Delta executed the
purchase agreement for the existing West Baltimore Street property in September, 2001. In October,
2001, Delta applied to a bank in Baltimore for a commercial loan of $10.5 million to purchase and
develop the property. The term sheet provided Delta with 90 days to close the loan transaction. It
required a refundable fee of $100,000 on executing the term sheet. Delta planned to use the
outstanding brokerage fees to be collected from Pink Tree to close its loan transaction. In the middle
of January, 2002, Pink Tree filed for chapter 11 bankruptcy. Mr. Thomas Dake, CFO of Delta
Group was now in a difficult situation of raising $100,000 to close the loan and to ensure that the
West Baltimore Senior Housing Project would be realized.


             Journal of the International Academy for Case Studies, Volume 15, Number 5, 2009
60

                         
				
DOCUMENT INFO
Description: Delta Inc was formed in 1998 by Thomas Dake and George Roberts. The firm was organized and located in Baltimore, MD. It provided brokerage services for a wide range of financial transactions for businesses in the state of Maryland. Pink Tree Finance, a public company listed on the New York Stock Exchange, was Delta's major business partner. About 60% of Delta's receivables were due from Pink Tree. The firm identified the West Baltimore Senior Housing Project as a good investment opportunity. In October 2001, Delta applied to a bank in Baltimore for a commercial loan of $10.5 million to purchase and develop the property. In the middle of January 2002, Pink Tree filed for chapter 11 bankruptcy. Thomas Dake, CFO of Delta Group was now in a difficult situation of raising $100,000 to close the loan and to ensure that the West Baltimore Senior Housing Project would be realized.
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